An Interdisciplinary Perspective on Using Financial Statement Analysis in Nonprofessional Investors’ Stock Investment Judgments

Abstract

Despite external evidence that employers seek MBA graduates with cross-functional problem-solving skills, prior research does not utilize financial statement analysis (FSA) as a tool for nonprofessional investors (NPIs) to develop interdisciplinary perspectives on problem-solving. This paper examines whether individual and group of NPIs stock investment decisions are influenced by the interaction of management credibility, competitive strategy, and financial flexibility as interdisciplinary FSA factors that professional analysts use for decision-making. Results indicate that when an NPI perceives the management of a public company is credible and the company has favorable (unfavorable) competitive strategy, the NPI is likely to buy (sell) the stock. Also, an NPI is virtually certain to buy (76% likely to sell) stock of a public company with credible management and unfavorable (favorable) financial flexibility. An NPI makes consistent stock investment decisions as the respective NPIs group. Results have implications for using FSA in solving business problems that have high rather than low integrative complexity.

Keywords: financial statement analysis, nonprofessional investors, financial flexibility, competitive strategy, management credibility, experiential learning

JEL Classification: G32, G41, C92